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Zürcher Kantonalbank

PRI reporting framework 2018

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

New selection options have been added to this indicator. Please review your prefilled responses carefully.

01.1. Indicate (1) which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities and (2) the breakdown of your actively managed listed equities by strategy or combination of strategies (+/- 5%)

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied
23 %
Percentage of active listed equity to which the strategy is applied
63 %
Percentage of active listed equity to which the strategy is applied
14 %
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to incorporation and the reasons for choosing the particular ESG incorporation strategy/strategies.

1.  => screening alone: For all actively managed listed equities (funds & mandates) we systematicly exclude producers of controversial weapons

Definition of controversial weapons:

  • Anti-personnel landmines
  • Biological and chemical weapons
  • Nuclear weapons
  • Small and light arms (added 2017)
  • Munitions and explosives for weapons
  • Cluster bombs and cluster munition

2. => screening  & integration strategy:  For actively managed equity funds and equity mandates (except quantitative managed funds/mandates)

  • We systematicly exclude producers of controversial weapons
  • We integrate ESG-Data (such as general ESG-Scores, Carbon Footprint, Reputational Risks or Governence Issues and so on). Details for ESG

ESG integration approach equities

First goal: We want to avoid investing in companies which have an unfavourable risk-return-profile, due to material ESG risks not yet (well) reflected in the valuation. We strive to identify potential risks to shareholders which could disrupt the share price.

How? The in-house ESG research team provides a database and a template which allows PM/Analysts to calculate the ESG indicator (ESG-I) for each company of the MSCI AC World Index and displays it graphically. The ESG indicator and its sub-scores in the environmental, social and governance field are ranked on a scale from one to ten and illustrated by colours from green (i.e. good) to red (i.e. bad). The scores rank a company within its global peer group industry (GICS level 3). When addressing the ESG issues, PM/Analysts are required to discuss the potential impact on valuation with the different ESG analysts to better understand whether the ESG issues are sufficiently reflected in the share price. These ESG issues are mostly sector relevant and should be addressed during an interaction with company and/or broker/analyst.

Second goal: We want to improve our understanding of the key economic drivers of each industry by addressing the key ESG challenges per industry.

How? Every analyst/PM gets an input based on industry specific ESG criteria in order to be able to define the relevant and material industry drivers. For successful investing it is imperative to understand the key economic drivers of each industry. In order to understand them, it is crucial to know if an industry is faced with severe ESG challenges (risk view). Within the quality assessment of the companies IAEN will provide for every industry the most material ESG criteria (so-called ESG KPI’s). The KPI’s are highlighted on the ESG template along with the connected material ESG questions which should be used when engaging with companies. The ESG KPI’s are presented and updated (if necessary) to the analysts/PM’s within the framework of the industry review meetings taking place regularly.

Comprehensive Publication of ESG-Integration in listed equities: https://products.swisscanto.com/dam/jcr:8ce3c23b-4bc3-43d7-8c2d-642f0f472001

 

3. => All three strategies combined:  For all sustainable investment products

We distinguish between two different product-lines:

  • Product-line "Sustainable"
  • Product-line "Responsible"

3.1 For our product-line "Sustainable"

Ex-ante exclusion criteria:
=> Anthropogenic climate change 

  • Companies with coal reserves
  • Extraction of fossil fuels
  • Operation of fossil-fuel power stations
  • Production of cars and aircrafts
  • Airlines 

=> Endangerment of the Earth's atmosphere

  • Production of substances that deplete the ozone layer

=>Loss of biodiversity

  • Not sustainable forestry
  • Not sustainable fishery and fish farming
  • Not sustainable palm-oil plantations
  • Genetic engineering

=> Threat to society and health

  • Nuclear energy
  • Production of arms and war material
  • Production of tobacco and smoking products
  • Production of alcohol (turnover threshold 5%)
  • Gambling (turnover threshold 5%)
  • Child labour (own operations)
  • Pornography

The application of the exclusion criteria is followed by a sector analysis: The aim is to extract those companies in their respective industries and regions that set an example by excelling at taking responsible actions in terms of environmental protection, social and governance issues. The selection of is based on a multi-step process. The quantitative analysis compares roughly 50 environmental, social and corporate governance indicators. The data is obtained from specialized providers (such as Asset4, Trucost, MSCI ESG Research & Governance Metrics or RepRisk). Then, we carry out a qualitative product and sector analysis, which is mainly built on the know-how, experience and industry-specific knowledge of our analysts.

The sector analysis is followed by a fundamental stock analysis with a strong focus on companies with a high "sustainability impact". The following investment opportunities were defined: Energy: Renewable energy, energy efficiency. Sustainable Mobility: Public transport, Individual transport. Knowledge: Education/Research, Interlinking. Health: Access to basic health supply, Preservation of health. Finance: Access to financial services, Financial infrastructure. Resources: Efficient use of water, resource efficiency.

 

3.1 For our product-line "Responsible":

Ex-ante exclusion criteria for companies:

=> Anthropogenic climate change

  • Companies with coal reserves

=>Loss of biodiversity

  • Genetic engineering

=> Threat to society and health

  • Nuclear energy
  • Production of arms and war material
  • Production of tobacco and smoking products
  • Production of alcohol (turnover threshold 5%)
  • Gambling (turnover threshold 5%)
  • Child labour (own operations)
  • Pornography

Laggard-out process: The application of the exclusion criteria is followed by a sector analysis: The aim is to exlude around 20% of the worst companies in their respective industries and regions in terms of environmental protection, social and governance issues. The quantitative analysis compares roughly 50 environmental, social and corporate governance indicators (same process as product-line "Sustainable"). The sector analysis is followed by a fundamental stock analysis which uses also ESG-data for the stock selection (same process as for for all actively managed equity funds and equity mandates.

 

 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

We use a combination of all three strategies for our productline "Sustainable": In order to define the range of sustainable products, the analysts apply a selection of very stringent exclusion criteria. The application of the exclusion criteria is followed by a sector analysis: The aim is to extract those companies in their respective industries and regions that set an example by excelling at taking responsible actions in terms of environmental protection, social and governance issues. The sector analysis is followed by a fundamental stock analysis with a strong focus on companies with a high sustainability impact.
Comprehensive description of the ESG incorporation strategie for our productline "Sustainable", compare answer LEI 01.2 (above)

We use a combination of all three strategies for our productline "Responsible": In order to define the range of responsible products, the analysts apply a selection of exclusion criteria. The application of the exclusion criteria is followed by a sector analysis: The aim is to extract the worst companies in their respective industries and regions. The sector analysis is followed by a fundamental stock analysis which uses also ESG-data for the stock selection (same process as for for all actively managed equity funds and equity mandates compare LEI_01.2).

 


LEI 02. Type of ESG information used in investment decision (Private)


LEI 03. Information from engagement and/or voting used in investment decision-making (Private)


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

1. Exclusion criteria for all actively managed listed equities (in funds & mandates):

Exclusion producers of controversial weapons:

  • Anti-personnel landmines
  • Biological and chemical weapons
  • Nuclear weapons
  • Small and light arms
  • Munitions and explosives for weapons
  • Cluster bombs and cluster munition

2. Exclusion criteria for sustainable Investments:

2.1 Exclusion criteria for our product-line "Sustainable"

=> Anthropogenic climate change 

  • Companies with coal reserves
  • Extraction of fossil fuels
  • Operation of fossil-fuel power stations
  • Production of cars and aircrafts
  • Airlines 

=> Endangerment of the Earth's atmosphere

  • Production of substances that deplete the ozone layer

=>Loss of biodiversity

  • Not sustainable forestry
  • Not sustainable fishery and fish farming
  • Not sustainable palm-oil plantations
  • Genetic engineering

=> Threat to society and health

  • Nuclear energy
  • Production of arms and war material
  • Production of tobacco and smoking products
  • Production of alcohol (turnover threshold 5%)
  • Gambling (turnover threshold 5%)
  • Child labour (own operations)
  • Pornography

2.3 Exclusion criteria for our product-line "Responsible"

=> Anthropogenic climate change

  • Companies with coal reserves

=>Loss of biodiversity

  • Genetic engineering

=> Threat to society and health

  • Nuclear energy
  • Production of arms and war material
  • Production of tobacco and smoking products
  • Production of alcohol (turnover threshold 5%)
  • Gambling (turnover threshold 5%)
  • Child labour (own operations)
  • Pornography

Screened by

Description

For our product-line "Sustainable" we apply a positive/best-in-class screening

The application of the exclusion criteria is followed by a sector analysis: The aim is to extract those companies in their respective industries and regions that set an example by excelling at taking responsible actions in terms of environmental protection, social and governance issues. The selection of is based on a multi-step process. The quantitative analysis compares roughly 50 environmental, social and corporate governance indicators. The data is obtained from specialized providers (such as Asset4, Trucost, MSCI ESG Research & Governance Metrics or RepRisk). Then, we carry out a qualitative product and sector analysis, which is mainly built on the know-how, experience and industry-specific knowledge of our analysts.

 

Screened by

Description

Our positive screening indictors (product line "Sustainable" and "Responsible") encompass a broad range of different sustainabilty norms (in German):

E:

  • Biodiversitätskonvention (CBD) inkl. Nagoya-Protokoll über den Zugang zu genetischen Ressourcen und gerechten Vorteilsausgleich
  • Cartagena-Protokoll über die biologische Sicherheit
  • International Tropical Timber Agreement (ITTA, 1983)
  • Washingtoner Artenschutzübereinkommen (CITES)
  • Klimarahmenkonvention (UNFCCC) inkl. Kyoto-Protokoll
  • GHG-Protokoll
  • Montrealer Protokoll über Stoffe, die zu einem Abbau der Ozonschicht führen
  • Stockholmer Konvention über langlebige organische Schadstoffe (POP-Übereinkommen)
  • REACH Europäische Chemikalienverordnung
  • OECD-Leitsätze für multinationale Unternehmen
  • UN Global Compact

S: 

  • ILO-Kernarbeitsnormen (u.a. Arbeitsbedingungen, Kinder-, Zwangsarbeit)
  • Menschenrechtsabkommen der UNO (u.a. Freiheits-, Sozialrechte, politische Rechte,Sicherheit, Würde)
  • Genfer Abkommen zu humanitärem Völkerrecht
  • UNO-Abkommen zu konventionellen, geächteten Waffen
  • OECD-Leitsätze für multinationale Unternehmen
  • UN Global Compact

G:

  • Internationale Corporate Governance Network (ICGN)
  • OECD-Grundsätze der Corporate Governance
  • UN-Konvention gegen Korruption
  • Internationale, nationale Strafgesetze
  • OECD-Leitsätze für multinationale Unternehmen
  • UN Global Compact

04.2. Describe how the screening criteria are established, how often the criteria are reviewed and how you notify clients and/or beneficiaries when changes are made.

Screening Criteria are developed by our internal specialized departement (ESG-solutions team) together with external experts and are regularly (at least once a year) revised. Changes are published on our homepage, factsheets and through other channels (e.g. Eurosif Transparency Guidelines).


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure screening is based on robust analysis.

          Zürcher-Kantonalbank RI Advisory Committee constantly checks whether the securities in the sustainable funds satisfy Zürcher-Kantonalbank's strict sustainability requirements and contributes to the maintenance and promotion
        

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]


LEI 06. Processes to ensure fund criteria are not breached (Private)


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

In order to define the range of sustainable thematic investment products, the analysts apply a selection of very stringent exclusion criteria. The ex-ante exclusion criteria make sure that our clients do not invest in companies that contribute to the world’s most serious environmental problems and social risks.

Ex-ante exclusion criteria for companies:

=> Anthropogenic climate change 

  • Companies with coal reserves
  • Extraction of fossil fuels
  • Operation of fossil-fuel power stations
  • Production of cars and aircrafts
  • Airlines 

=> Endangerment of the Earth's atmosphere

  • Production of substances that deplete the ozone layer

=>Loss of biodiversity

  • Not sustainable forestry
  • Not sustainable fishery and fish farming
  • Not sustainable palm-oil plantations
  • Genetic engineering

=> Threat to society and health

  • Nuclear energy
  • Production of arms and war material
  • Production of tobacco and smoking products
  • Production of alcohol (turnover threshold 5%)
  • Gambling (turnover threshold 5%)
  • Child labour (own operations)
  • Pornography

The analysis of exclusion criteria is followed by a fundamental stock analysis with a strong focus on companies with a high "sustainability impact". The following investment opportunities were defined: Energy: Renewable energy, energy efficiency. Sustainable Mobility: Public transport, Individual transport. Knowledge: Education/Research, Interlinking. Health: Access to basic health supply, Preservation of health. Finance: Access to financial services, Financial infrastructure. Resources: Efficient use of water, resource efficiency.

We offer products on single topics (e.g. climate change, water) as well as a multi thematic fund.


(C) Implementation: Integration of ESG issues

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate which ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]


LEI 09. Processes to ensure integration is based on robust analysis (Private)


LEI 10. Aspects of analysis ESG information is integrated into (Private)


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